Text: HF02078 Text: HF02080 Text: HF02000 - HF02099 Text: HF Index Bills and Amendments: General Index Bill History: General Index
PAG LIN 1 1 Section 1. Section 422.7, Code Supplement 2001, is amended 1 2 by adding the following new subsection: 1 3 NEW SUBSECTION. 38. a. For purposes of this subsection: 1 4 (1) "Capital stock" means voting and nonvoting common and 1 5 preferred stock and stock options issued pursuant to an 1 6 incentive stock option plan. "Capital stock" does not include 1 7 stock rights, stock warrants, or debt securities, and does not 1 8 include stock or stock options issued by a corporation which 1 9 does not offer incentive stock options to all full-time 1 10 employees. A corporation does not offer incentive stock 1 11 options to all full-time employees unless each of those 1 12 employees is issued at least a number of incentive stock 1 13 options equal to twenty percent of all issued outstanding 1 14 incentive stock options divided by the number of full-time 1 15 employees. A corporation does not offer incentive stock 1 16 options to all full-time employees unless any restrictions on 1 17 the exercise or sale of the stock options apply to all these 1 18 employees under the same terms. 1 19 (2) "Corporation" means any of the following: 1 20 (a) A corporation which at the time of the first sale or 1 21 exchange for which an election is made under paragraph "c" has 1 22 been in existence and actively doing business for at least 1 23 three years and is not a personal holding company as defined 1 24 in section 542(a) of the Internal Revenue Code. 1 25 (b) A corporation which is a member of an affiliated 1 26 group, as defined in section 1504(a) of the Internal Revenue 1 27 Code, which group includes a corporation described in 1 28 subparagraph subdivision (a) and which group has been in 1 29 existence and actively doing business for at least three 1 30 years. 1 31 (c) A predecessor or successor corporation of a 1 32 corporation described in subparagraph subdivision (a). A 1 33 corporation is a predecessor or successor corporation if the 1 34 corporation was a party to a reorganization that was entirely 1 35 or substantially income tax free and that occurred during or 2 1 after the employment of the taxpayer making an election under 2 2 paragraph "c". 2 3 (3) "Incentive stock option" means the same as defined in 2 4 section 422(b) of the Internal Revenue Code. 2 5 b. For purposes of this subsection, the corporation 2 6 issuing capital stock for which an election under paragraph 2 7 "c" is made must, at the time of the first sale or exchange 2 8 for which the election is made, have at least five 2 9 shareholders and at least two shareholders or groups of 2 10 shareholders who are not related to each other and each of 2 11 which owns at least five percent of the capital stock. 2 12 For purposes of this paragraph "b", two persons shall be 2 13 considered to be related when, under section 318 of the 2 14 Internal Revenue Code, one is a person who owns, directly or 2 15 indirectly, capital stock that if directly owned would be 2 16 attributed to the other person or is the spouse, child, 2 17 parent, grandparent, brother, sister, aunt, uncle, cousin, 2 18 niece, or nephew of the other person who owns capital stock 2 19 either directly or indirectly. 2 20 c. (1) In the manner provided in paragraph "d", an 2 21 individual may elect to subtract one-half of the capital gain 2 22 from the sale or exchange of capital stock of a corporation 2 23 acquired by the individual on account of employment with that 2 24 corporation. However, for tax years beginning in the 2002 2 25 calendar year, the amount that may be subtracted is one-fourth 2 26 of such capital gain. 2 27 (2) (a) Each individual shall be entitled to two 2 28 elections under subparagraph (1) during the individual's 2 29 lifetime for the capital stock of two different corporations. 2 30 (b) The election applies only to the tax year for which 2 31 the election was made and applies to all sales and exchanges 2 32 in the tax year for which the election was made of capital 2 33 stock in the same corporation which was acquired as provided 2 34 in subparagraph (1). 2 35 (c) After the individual makes an election for the tax 3 1 year, the election shall also apply to the sale or exchange in 3 2 that tax year of capital stock of the corporation which had 3 3 been transferred by inter vivos gift from the individual to 3 4 the individual's spouse if the capital stock was acquired as 3 5 provided in subparagraph (1). This provision applies in the 3 6 case of the spouse, only if the spouse was married to such 3 7 individual on the date of sale or exchange or the date of 3 8 death of the individual and if the spouse and individual file 3 9 a joint Iowa income tax return on which the election is made. 3 10 If the individual dies without making an election, the 3 11 surviving spouse may make the election for capital stock that 3 12 would have qualified under this subparagraph subdivision. 3 13 However, if there is no surviving spouse, the oldest surviving 3 14 issue who owns capital stock that would have qualified under 3 15 this subparagraph subdivision may make the election. 3 16 d. An election under paragraph "c" shall be made by 3 17 including a written statement with the taxpayer's Iowa income 3 18 tax return for the tax year for which the election is made. 3 19 The written statement shall identify the corporation that 3 20 issued the capital stock, the grounds for the election under 3 21 this subsection, and that the taxpayer elects to have this 3 22 subsection apply to sales and exchanges in that tax year. 3 23 (1) In order for the taxpayer to claim the benefits of the 3 24 partial deduction of the capital gain under this subsection, 3 25 the taxpayer must completely fill out the tax return, 3 26 determine the taxpayer's income tax liability without the 3 27 benefit of this subsection, and pay the amount of tax owed. 3 28 The taxpayer shall recompute the taxpayer's income tax 3 29 liability, by applying the provisions of this subsection on a 3 30 special return. This special return shall be filed under 3 31 rules of the director and constitutes a claim for refund of 3 32 the difference between the amount of tax the taxpayer paid as 3 33 determined without the application of the provisions of this 3 34 subsection and the amount of tax determined with the 3 35 application of the provisions of this subsection. 4 1 (2) This subsection shall not affect the amount of the 4 2 taxpayer's checkoff to the Iowa election campaign fund under 4 3 section 56.18, the checkoff for the state fish and game 4 4 protection fund in section 456A.16, the credits from tax 4 5 provided in sections 422.10, 422.11A, and 422.12 and the 4 6 allocation of these credits between spouses if the taxpayers 4 7 filed separate returns or separately on combined returns. 4 8 (3) For any tax year, the aggregate amount of refund 4 9 claims that shall be paid pursuant to this subsection shall 4 10 not exceed three million dollars. If, for a tax year, the 4 11 aggregate amount of refund claims filed pursuant to this 4 12 subsection exceeds three million dollars, each claim for 4 13 refund shall be paid on a pro rata basis so that the aggregate 4 14 amount of refund claims paid does not exceed three million 4 15 dollars. In the case where refund claims are not paid in 4 16 full, the amount of the refund to which the taxpayer is 4 17 entitled under this subsection is the pro rata amount that was 4 18 paid and the taxpayer is not entitled to a refund of the 4 19 unpaid portion and is not entitled to carry that amount 4 20 forward or backward to another tax year. Taxpayers shall not 4 21 use refunds as estimated payments for the succeeding tax year. 4 22 Taxpayers whose tax years begin on January 1 must file their 4 23 refund claims by October 31 of the calendar year following the 4 24 end of their tax years to be eligible for refunds. Taxpayers 4 25 whose tax years begin on a date other than January 1 must file 4 26 their refund claims by the end of the tenth month following 4 27 the end of their tax years to be eligible. The department 4 28 shall determine on February 1 of the second succeeding 4 29 calendar year if the total amount of claims for refund exceeds 4 30 three million dollars for the tax year. Notwithstanding any 4 31 other provision, interest shall not be due on any refund 4 32 claims that are paid by the last day of February of the second 4 33 succeeding calendar year. If the claim is not payable on 4 34 February 1 of the second succeeding calendar year, because the 4 35 taxpayer is a fiscal year filer, the claim shall be considered 5 1 a claim for the following tax year. 5 2 e. The deduction under this subsection is in lieu of any 5 3 deduction allowable under section 1202 of the Internal Revenue 5 4 Code for the capital gain from the sale or exchange of the 5 5 same capital stock. 5 6 Sec. 2. EFFECTIVE AND RETROACTIVE APPLICABILITY DATE. 5 7 This Act, being deemed of immediate importance, takes effect 5 8 upon enactment and applies retroactively to January 1, 2002, 5 9 for tax years beginning on or after that date. 5 10 EXPLANATION 5 11 This bill provides a deduction under the individual income 5 12 tax of 50 percent (25 percent for the 2002 tax year) of the 5 13 capital gain from the sale or exchange of capital stock of a 5 14 corporation acquired by the taxpayer on account of employment 5 15 with the corporation. The taxpayer must make an election to 5 16 take the deduction and the election only applies for that tax 5 17 year. The election is made by a written statement filed with 5 18 the department. In addition, the benefits of the deduction 5 19 are realized by means of a refund claim. This involves the 5 20 taxpayer filing a return with tax liability determined without 5 21 deduction for the capital gain and a special return with tax 5 22 liability determined with the deduction for the capital gain. 5 23 The reduction in tax liability will be treated as a claim for 5 24 refund of the amount of the reduction. However, not more than 5 25 $3 million in tax refunds may be allowed for any tax year. If 5 26 more refunds are claimed, then each refund claim is payable at 5 27 a pro rata amount, which is the final amount of the taxpayer's 5 28 actual refund. A taxpayer may make two elections for two 5 29 different corporations during the taxpayer's lifetime. The 5 30 election would also apply to stock sold during that tax year 5 31 which was previously granted to a spouse of the taxpayer but 5 32 only if they file a joint Iowa income tax return. The 5 33 election would not apply to capital gains from stock or stock 5 34 options unless the corporation issuing the options offered 5 35 them to all full-time employees. 6 1 The deduction is in lieu of the deduction that may be 6 2 allowable under the Internal Revenue Code for sale or exchange 6 3 of stock in a small business held for five years. 6 4 The bill takes effect upon enactment and applies 6 5 retroactively to January 1, 2002, for tax years beginning on 6 6 or after that date. 6 7 LSB 5319HV 79 6 8 mg/cls/14
Text: HF02078 Text: HF02080 Text: HF02000 - HF02099 Text: HF Index Bills and Amendments: General Index Bill History: General Index
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